DOMO, INC. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements containing words such as "may," "believe," "could," "will," "seek," "depends," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. They include, but are not limited to, statements about:
•our ability to attract new customers and retain and expand our relationships with existing customers;
•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, key metrics, ability to generate cash flow and ability to achieve and maintain future profitability;
•the anticipated trends, market opportunity, growth rates and challenges in our business and in the business intelligence software market;
•the efficacy of our sales and marketing efforts;
•our ability to compete successfully in competitive markets;
•our ability to respond to and capitalize on rapid technological changes;
•our expectations and management of future growth;
•our ability to enter new markets and manage our expansion efforts, particularly internationally;
•our ability to develop new product features;
•our ability to attract and retain key employees and qualified technical and sales personnel;
•our ability to effectively and efficiently protect our brand;
•our ability to timely scale and adapt our infrastructure;
•the effect of general economic and market conditions on our business;
•the impact of the coronavirus pandemic, including on the global economy, our results of operations, enterprise software spending, and business continuity;
•our ability to protect our customers' data and proprietary information;
•our ability to maintain, protect, and enhance our intellectual property and not infringe upon others' intellectual property; and
•our ability to comply with all governmental laws, regulations and other legal obligations.
Our actual results may differ materially from those contained in or implied by
any forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this report,
including those factors discussed in Part II, Item 1A (Risk Factors).
In light of the significant uncertainties and risks inherent in these
forward-looking statements, you should not regard these statements as a
representation or warranty by us or anyone else that we will achieve our
objectives or plans in any specified time frame, or at all, or as predictions of
future events. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking statements. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by law.
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Overview
We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then encouraging all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases. Furthermore, even for organizations that were capable of accessing their data, the process for doing so was time-consuming, costly, and often resulted in the data being out-of-date by the time it reached decision makers. The delivery format, including alert functionality, and devices were not adequate for the connected and real-time mobile workforce. Based on these observations, it was apparent that all organizations, regardless of size or industry, were failing to unlock the power of all of their people, data, and systems. To address these challenges, we provide a modern cloud-based business intelligence platform that digitally connects everyone at an organization - from the CEO to frontline employees - with all the people, data, and systems in an organization, giving them access to real-time data and insights and allowing them to manage their business from their smartphones. We offer our platform to our customers as a subscription-based service. Subscription fees are based upon the chosen Domo package which includes tier-based platform capabilities as well as users. Business leaders, department heads and managers are the typical initial subscribers to our platform, deploying Domo to solve a business problem or to enable departmental access. Over time, as customers recognize the value of our platform, we increasingly engage with CIOs and other executives to facilitate broad enterprise adoption. A majority of our customers subscribe to our services through multi-year contracts. As ofApril 30, 2022 , 64% of our customers were under multi-year contracts on a dollar-weighted basis, compared to 62% of customers as ofJanuary 31, 2022 . The high percentage revenue from multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue. We typically invoice our customers annually in advance for subscriptions to our platform. A majority of our annual recurring revenue is up for renewal during the fiscal year endingJanuary 31, 2023 . Remaining performance obligations (RPO) represents the remaining amount of revenue we expect to recognize from existing non-cancelable contracts, whether billed or unbilled. As ofApril 30, 2021 and 2022, total RPO was$284.3 million and$351.5 million , respectively, representing year-over-year growth of 24%. The amount of RPO expected to be recognized as revenue in the next twelve months was$180.8 million and$225.0 million as ofApril 30, 2021 and 2022, respectively, representing year-over-year growth of 24%. We had total revenue of$60.1 million and$74.5 million for the three months endedApril 30, 2021 and 2022, respectively, reflecting a year-over-year increase of 24%. For the three months endedApril 30, 2021 and 2022, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately. Revenue from customers with billing addresses inthe United States comprised 77% and 79% or our total revenue for the three months endedApril 30, 2021 and 2022, respectively. Our revenue growth rate may decline in future periods due to a number of reasons, which may include the maturation of our business, increase in overall revenue over time, slowing demand for our platform, increasing competition, a decrease in the growth of the markets in which we compete, or if we fail, for any reason, to continue to capitalize on growth opportunities, a decrease in our renewal rates, or a decline in upsells. We have incurred significant net losses since our inception, including net losses of$18.1 million and$32.9 million for the three months endedApril 30, 2021 and 2022, respectively, and had an accumulated deficit of$1,257.4 million atApril 30, 2022 . We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.
COVID-19 Impact
A novel strain of coronavirus, COVID-19, emerged inChina inDecember 2019 and began to spread globally, including tothe United States . InMarch 2020 , COVID-19 was characterized by theWorld Health Organization as a global pandemic. The full impact of the COVID-19 pandemic is inherently uncertain at the time of this report. The COVID-19 pandemic has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global financial markets. We cannot reasonably predict the extent to which the COVID-19 pandemic will impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the duration and scope of the pandemic (including any potential future waves of the pandemic as well as new and emerging variants of COVID-19) as well as governmental, business and individual actions that have been and continue to be taken in response to the pandemic (including 24
-------------------------------------------------------------------------------- the availability, adoption and effectiveness of COVID-19 vaccines). Because our platform is offered as a subscription-based service, the effect of the pandemic may not be fully reflected in our operating results until future periods, if at all. Before the COVID-19 pandemic, a significant portion of field sales and professional services were conducted in person. Currently, as a result of the ongoing COVID-19 pandemic, a significant portion of our sales and professional services activities are being conducted remotely. These changes will likely extend into future quarters. The impact, if any, of these and any additional operational changes we may implement is uncertain, but changes we have implemented have not affected and are not expected to affect our ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures. As of the date of this report, we do not yet know the full extent of the pandemic's impact on our ability to attract, serve, retain or upsell customers. We serve customers in a wide variety of industries including travel and hospitality, sports and leisure, and retail which have been severely impacted by the COVID-19 pandemic. Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the COVID-19 pandemic. In addition, certain customers have pursued concessions such as lengthened payment terms or reduced contract length, and these concessions may materially and negatively impact our operating results, financial condition and prospects.Additionally, if and to the extent work and travel restrictions related to COVID-19 are relaxed, we may begin shifting certain professional, sales and marketing activities from remote work to in-person or hybrid models, which could result in us incurring additional operating expenses associated with business travel, office space leases and other factors. See Item 1A "Risk Factors" in Part II of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business.
Factors Affecting Performance
Continue to Attract New Customers
We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities. We define a customer at the end of any particular quarter as an entity that generated revenue greater than$2,500 during that quarter. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer. In cases where customers purchase through a reseller, each end customer is counted separately. We define enterprise customers as companies with over$1 billion in revenue, and companies with less than$1 billion in revenue are corporate customers. In order to maintain comparability, companieswho become customers with revenue below$1 billion and subsequently exceed that threshold are considered enterprise customers for all periods presented. As ofApril 30, 2022 , we had over 2,400 customers. For the three months endedApril 30, 2021 and 2022, our enterprise customers accounted for 55% and 49% of our revenue, respectively. In order to accelerate customer growth, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and other partners to provide broader customer and geographic coverage. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.
Customer Upsell and Retention
We employ a land, expand, and retain sales model, and our performance depends on
our ability to retain customers and expand the use of our platform at existing
customers over time. It currently takes multiple years for our customers to
fully embrace the power of our platform. We believe that as customers deploy
greater volumes and sources of data for multiple use cases, the unique features
of our platform can address the needs of everyone within their organization. We
are still in the early stages of expanding within many of our customers.
We have invested in platform capabilities and online support resources that
allow our customers to expand the use of our platform in a self-guided manner.
Our professional services, customer support and customer success functions also
support our sales force by helping customers to successfully deploy our platform
and implement additional use cases. In addition, we believe our partner
ecosystem will become increasingly important over time. We work closely with our
customers to drive increased engagement with our platform by identifying new use
cases through our customer success teams, as well as in-platform, self-guided
experiences. We actively engage with our customers to assess whether they are
satisfied and fully realizing the benefits of our platform. While these efforts
often require a substantial commitment and upfront costs, we believe our
investment in product, customer support, customer success and professional
services will create opportunities to expand our customer relationships over
time.
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-------------------------------------------------------------------------------- Our ability to drive growth and generate incremental revenue depends heavily on our ability to retain our customers and increase their usage of our platform. With that objective in mind, we allocate our customer success and customer support resources to align with maximizing the retention and expansion of our subscription revenue. An important metric that we use to evaluate our performance in retaining customers is gross retention rate. We calculate our gross retention rate by taking the dollar amount of annual contract value (ACV) that renews in a given period divided by the ACV that was up for renewal in that same period. The ACV of multi-year contracts is also considered in the calculation based on the period in which the annual anniversary of the contract falls. Our gross retention rate was 89% and 93% for the 12 months endedApril 30, 2021 and 2022, respectively. As we continue to enhance our product and develop methods to encourage wider and more strategic adoptions, we expect that customer retention will increase over the long term. Our ability to successfully upsell and the impact of cancellations may vary from period to period. The extent of this variability depends on a number of factors including the size and timing of upsells and cancellations relative to the initial subscriptions.
Sales and Marketing Efficiency
We are focused on increasing the efficiency of our sales force and marketing activities by enhancing account targeting, messaging, field sales operations and sales training in order to accelerate the adoption of our platform. Our sales strategy depends on our ability to continue to attract top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity. During fiscal 2023 we have hired, and plan to continue hiring more sales representatives, which may have an adverse impact on productivity in the near term. We manage our pipeline by sales representative to ensure sufficient coverage of our sales targets. Our ability to manage our sales productivity and pipeline are important factors to the success of our business. We have shifted marketing spending from broad-based initiatives to targeted account-based marketing campaigns and user events that we believe will result in contracts with larger companies which we expect will result in more upsell ACV potential. Sales and marketing expense as a percentage of total revenue was 56% for the three months endedApril 30, 2021 compared to 61% for the three months endedApril 30, 2022 .
We plan to continue to make investments in areas of our business to continue to expand our platform functionality. This may include investing in machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most. These investments may also include extending the functionality and effectiveness of our platform through improvements to the Domo Appstore and developer toolkits, which enable customers and partners to quickly build and deploy custom applications. The amount of new investments required to achieve our plans is expected to decrease as a percentage of revenue compared to historical years. Research and development expense as a percentage of total revenue was 27% for the three months endedApril 30, 2021 compared to 31% for the three months endedApril 30, 2022 . Key Business Metric Billings Billings represent our total revenue plus the change in deferred revenue in a period. Billings reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice our customers annually in advance for subscriptions to our platform. Because we generate most of our revenue from customerswho are invoiced on an annual basis and have a wide range of annual contract values, we may experience variability due to typical enterprise buying patterns and timing of large initial contracts, renewals and upsells. 26
-------------------------------------------------------------------------------- The following table sets forth our billings for the three months endedApril 30, 2021 and 2022: Three Months Ended April 30, 2021 2022 Billings (in thousands)$ 58,243 $ 72,926
Components of Results of Operations
Revenue
We offer subscriptions to our cloud-based platform. We derive our revenue primarily from subscriptions and professional services. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform, which includes online customer support resources at no additional cost. Professional service fees include implementation services, optimization services, and training. Subscription revenue is a function of the number of customers, platform tier, number of users, price per user, and transaction and data volumes. Subscription revenue is recognized ratably over the related contractual term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of one to three years, and we generally invoice our customers in annual installments at the beginning of each year in the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Professional services and other revenue primarily consists of implementation services sold with new subscriptions, as well as professional services sold separately, including training and education. Professional services are generally billed in advance and revenue from these arrangements is recognized as the services are performed. Our professional services engagements typically span from a few weeks to several months.
Cost of Revenue
Cost of subscription revenue consists primarily of third-party hosting services and data center capacity; salaries, benefits, bonuses and stock-based compensation, or employee-related costs, directly associated with cloud infrastructure and customer support personnel; amortization expense associated with capitalized software development costs; depreciation expense associated with computer equipment and software; certain fees paid to various third parties for the use of their technology and services; and allocated overhead. Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs.
Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
employee-related costs directly associated with our sales and marketing staff
and commissions. Other sales and marketing costs include digital marketing
programs and promotional events to promote our brand, including Domopalooza, our
annual user conference, as well as tradeshows, advertising and allocated
overhead. Contract acquisition costs, including sales commissions, are deferred
and then amortized on a straight-line basis over the period of benefit, which we
have determined to be approximately four years for initial contracts. Contract
acquisition costs related to renewal contracts and professional services are
recorded as expense when incurred if the period of benefit is one year or less.
If the period of benefit is greater than one year, costs are deferred and then
amortized on a straight-line basis over the period of benefit, which we have
determined to be two years.
Research and Development. Research and development expenses consist primarily of
employee-related costs for the design and development of our platform,
contractor costs to supplement staff levels, third-party web services,
consulting services, and allocated overhead. Our cycle of frequent updates has
facilitated rapid innovation and the introduction of new product features
throughout our history. We capitalize certain software development costs that
are attributable to developing new features and adding incremental functionality
to our platform, and amortize such costs as costs of subscription revenue over
the estimated life of the new feature or incremental functionality, which is
generally three years.
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-------------------------------------------------------------------------------- General and Administrative. General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, recruiting and administrative personnel; professional fees for external legal, accounting, recruiting and other consulting services; and allocated overhead costs. Other Expense, Net Other expense, net consists primarily of interest expense related to long-term debt. It also includes the effect of exchange rates on foreign currency transaction gains and losses foreign currency gains and losses upon remeasurement of intercompany balances, and sublease income. The transactional impacts of foreign currency are recorded as foreign currency losses (gains) in the condensed consolidated statements of operations.
Provision for (Benefit from) Income Taxes.
Provision for (benefit from) income taxes consists primarily of income taxes
related to foreign and state jurisdictions in which we conduct business. Because
of the uncertainty of the realization of the deferred tax assets, we have a full
valuation allowance for domestic net deferred tax assets, including net
operating loss carryforwards and tax credits related primarily to research and
development.
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Results of Operations
The following tables set forth selected condensed consolidated statements of
operations data and such data as a percentage of total revenue for each of the
periods indicated:
Three Months Ended April 30,
2021 2022
Revenue: (in thousands)
Subscription $ 52,112 $ 64,575
Professional services and other 7,950 9,889
Total revenue 60,062 74,464
Cost of revenue:
Subscription(1) 9,057 10,667
Professional services and other(1) 6,101 6,994
Total cost of revenue 15,158 17,661
Gross profit 44,904 56,803
Operating expenses:
Sales and marketing(1) 33,454 45,587
Research and development(1) 16,186 23,191
General and administrative(1)(2) 10,218 16,660
Total operating expenses 59,858 85,438
Loss from operations (14,954) (28,635)
Other expense, net(1) (3,262) (4,065)
Loss before income taxes (18,216) (32,700)
(Benefit from) provision for income taxes (112) 188
Net loss $ (18,104) $ (32,888)
________________(1)Includes stock-based compensation expense as follows:
Three Months Ended April 30,
2021 2022
Cost of revenue: (in thousands)
Subscription $ 419 $ 731
Professional services and other 334 468
Sales and marketing(a) 3,727 8,075
Research and development(a) 2,489 7,004
General and administrative(a)(b) 2,916 8,805
Other expense, net 177 181
Total $ 10,062 $ 25,264 (a) Includes
(b) Includes
(2)Includes amortization of certain intangible assets of
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Three Months Ended April 30,
2021 2022
Revenue:
Subscription 87 % 87 %
Professional services and other 13 13
Total revenue 100 100
Cost of revenue:
Subscription 15 14
Professional services and other 10 10
Total cost of revenue 25 24
Gross margin 75 76
Operating expenses:
Sales and marketing 56 61
Research and development 27 31
General and administrative 17 22
Total operating expenses 100 114
Loss from operations (25) (38)
Other expense, net (5) (5)
Loss before income taxes (30) (43)
(Benefit from) provision for income taxes - -
Net loss (30) % (43) %
Discussion of the Three Months Ended
Revenue
Three Months Ended April 30,
2021 2022 $ Change % Change
(in thousands)
Revenue:
Subscription $ 52,112 $ 64,575 $ 12,463 24 %
Professional services and other 7,950 9,889 1,939 24
Total revenue $ 60,062 $ 74,464 $ 14,402 24
Percentage of revenue:
Subscription 87 % 87 %
Professional services and other 13 13
Total 100 % 100 %
The increase in subscription revenue was primarily due to a $7.7 million
increase from new customers and a $4.8 million increase from existing customers.
Our customer count increased 15% from April 30, 2021 to April 30, 2022 . For the
purpose of this comparison, new customers are defined as those added since the
end of the prior year quarter. Revenue from existing customers is presented net
of churn. The increase in professional services and other revenue was due to a
higher volume of billable hours delivered and a higher average revenue rate per
hour.
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--------------------------------------------------------------------------------Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended April 30,
2021 2022 $ Change % Change
(in thousands)
Cost of revenue:
Subscription $ 9,057 $ 10,667 $ 1,610 18 %
Professional services and other 6,101 6,994 893 15
Total cost of revenue $ 15,158 $ 17,661 $ 2,503 17
Gross profit $ 44,904 $ 56,803 $ 11,899 26
Gross margin:
Subscription 83 % 83 %
Professional services and other 23 29
Total gross margin 75 76
Subscription cost of revenue increased primarily due to a $0.8 million increase
in employee-related costs, attributable to higher headcount and stock-based
compensation, of which $0.3 million was related to stock-based compensation.
Other increases included a $0.5 million increase in third-party web hosting
services and a $0.3 million increase in amortization of capitalized software
development costs. The increase in professional services and other cost of
revenue is primarily due to a $0.8 million increase in employee-related costs,
attributable to higher headcount.
Subscription gross margin remained flat while services gross margin improved due
to higher utilization of internal client services resources and a higher average
revenue rate per hour. We expect the gross margin for professional services to
fluctuate from period to period due to changes in the proportion of services
provided by third-party consultants, seasonality, as well as timing of projects
with higher margins.
Operating Expenses
Three Months Ended April 30,
2021 2022 $ Change % Change
(in thousands)
Operating expenses:
Sales and marketing $ 33,454 $ 45,587 $ 12,133 36 %
Research and development 16,186 23,191 7,005 43
General and administrative 10,218 16,660 6,442 63
Total operating expenses $ 59,858 $ 85,438 $ 25,580 43
Percentage of revenue:
Sales and marketing 56 % 61 %
Research and development 27 31
General and administrative 17 22
Sales and marketing expenses increased primarily due to a $7.3 million increase
in employee-related costs, attributable to higher headcount and and stock-based
compensation, of which $4.3 million related to stock-based compensation. Expense
related to demand generation and marketing events increased by $1.8 million .
Commissions expense increased by $1.4 million due to higher sales attainment.
Other increases include $0.6 million in contract labor, $0.6 million in referral
fees, and $0.5 million in travel expenses. We expect sales and marketing expense
to increase in the near term as we continue to invest in the growth of our
business. Over the long term, we expect sales and marketing expense to decrease
as a percentage of revenue.
Research and development expenses increased primarily due to a
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result of fiscal 2022 bonuses paid in the form of vested restricted stock units
during the three months ended April 30, 2022 . Other minor increases totaling
$0.6 million included rent expense, contract labor, and software subscription.
In the near term, we expect research and development expense to increase, but
expect that it will decline as a percentage of total revenue in the long term as
we leverage our research and development organization.
General and administrative expenses increased primarily due to a $4.8 million
increase in employee-related costs, of which $5.9 million related to stock-based
compensation. The $5.9 million increase in stock-based compensation was
partially offset by a $1.9 million decrease in bonus expense as a result of
fiscal 2022 bonuses paid in the form of vested restricted stock units during the
three months ended April 30, 2022 . Professional and legal fees increased by $1.2
million and recruiting fees increased by $0.3 million . In the near term, we
expect general and administrative expense to fluctuate from period to period,
but expect that it will decline as a percentage of total revenue in the long
term as we leverage previous investments in our general and administrative
organization.
Other Expense, Net
Three Months Ended April 30,
2021 2022 $ Change % Change
(in thousands)
Other expense, net $ (3,262) $ (4,065) $ (803) 25 %
Other expense, net increased primarily due to a $0.7 million increase in expense
related to changes in foreign exchange rates and a higher balance of cash
denominated in currencies other than the functional currency. We expect foreign
currency gains and losses could become more pronounced due to currency market
volatility and as we continue to expand our foreign operations. We expect
interest expense to increase modestly due to an increasing principal balance and
anticipated higher market interest rates.
(Benefit from) Provision for Income Taxes
Three Months Ended April 30,
2021 2022 $ Change % Change
(in thousands)
(Benefit from) provision for income taxes
188$ 300 (268) %
Income taxes increased primarily due to one-time return to provision adjustments
during the three months ended
Liquidity and Capital Resources
As ofApril 30, 2022 , we had$84.0 million of cash and cash equivalents, which were held for working capital purposes. Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit. We also have a$100 million credit facility, all of which had been drawn as ofApril 30, 2022 . Since inception, we have financed operations primarily from cash collected from customers for our subscriptions and services, periodic sales of convertible preferred stock, our initial public offering and to a lesser extent, debt financing. Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Over the longer term, we plan to continue investing in, among other things, growth opportunities, product development, and sales and marketing. If available funds are insufficient to fund our future activities or execute on our strategy, we may raise additional capital through equity, equity-linked and debt financing, to the extent such funding sources are available. Alternatively, we may be required to reduce expenses to manage liquidity; however, any such reductions could adversely impact our business and competitive position. Our future capital requirements will depend on many factors, including our growth rate; the level of investments we make in product development, sales and marketing activities and other investments to support the growth of our business; the continuing market acceptance of our platform; and customer retention rates, and may increase materially from those currently planned. If we raise additional funds through the 32
-------------------------------------------------------------------------------- incurrence of indebtedness, such indebtedness likely would have rights that are senior to holders of our equity securities and could contain covenants that restrict operations in the same or similar manner as our credit facility. Any additional equity financing likely would be dilutive to existing stockholders. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. Although we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. We have no present understandings, commitments or agreements to enter into any such acquisitions. We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements. Credit Facility InAugust 2020 , we entered into an amendment to the credit facility which extended the maturity date for the outstanding loan fromOctober 1, 2022 toApril 1, 2025 . Per the amendment, we are required to comply with a financial covenant requiring us to maintain a minimum balance of unrestricted cash and cash equivalents equal to$10.0 million until our six-month adjusted cash flow is greater than zero. The amendment also revised the maximum debt ratio financial covenant and included an amendment fee of$5.0 million , which accrues interest at a rate of 9.5% per year. The amendment fee, along with its accrued interest, is to be paid at the earlier of the payment date, maturity date, or the date the loan becomes payable. The credit facility permits us to incur up to$100 million in term loan borrowings, all of which had been drawn as ofApril 30, 2022 . The term loan maturity date isApril 1, 2025 with a closing fee of$7.0 million , which is in addition to the$5.0 million amendment fee described above. Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year. In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7% and (2) theU.S. prime rate plus 2.75% per year. As ofApril 30, 2022 , the interest rate was approximately 7%. In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year. The credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, make material changes to the nature, control or location of our business, merge with or acquire other entities, incur indebtedness or encumbrances, make distributions to holders of our capital stock, make investments or enter into transactions with affiliates. In addition, we are required to comply with a financial covenant based on the ratio of our outstanding indebtedness to our annualized recurring revenue. The maximum ratio is 0.550 onJanuary 31, 2022 andApril 30, 2022 ; 0.525 onJuly 31, 2022 andOctober 31, 2022 ; and 0.500 onJanuary 31, 2023 through the maturity date. The credit facility defines our annualized recurring revenue as four times our aggregate revenue for the immediately preceding quarter (net of recurring discounts and discounts for periods greater than one year) less the annual contract value of any customer contracts pursuant to which we were advised during such quarter would not be renewed at the end of the current term plus the annual contract value of existing customer contract increases during such quarter. This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. We were in compliance with the covenant terms of the credit facility atJanuary 31, 2022 andApril 30, 2022 . The credit facility is secured by substantially all of our assets. 33 --------------------------------------------------------------------------------
Historical Cash Flow Trends
Three Months Ended April 30,
2021 2022
(in thousands)
Net cash (used in) provided by operating activities $ (2,728) $ 781
Net cash used in investing activities (1,778) (1,937)
Net cash (used in) provided by financing activities (1,457) 2,287
Operating Activities
Net cash provided by operating activities consisted primarily of payments
received from our customers, cash we invest in our personnel, timing and amounts
we use to fund marketing programs and events to expand our customer base, and
the costs to provide our cloud-based platform and related outsourced
professional services to our customers.
Net cash used in operating activities during the three months ended April 30,
2021 consisted of cash outflows of $76.7 million exceeding the $74.0 million of
cash collected from customers. Significant components of cash outflows included
$49.0 million for personnel costs and $12.6 million for marketing programs and
events, third-party costs to provide our platform and outsourced professional
services.
Net cash provided by operating activities during the three months ended April
30, 2022 consisted of cash collected from customers of $90.4 million exceeding
the cash outflows of $89.6 million . Significant components of cash outflows
included $61.2 million for personnel costs and $11.6 million for marketing
programs and events, third-party costs to provide our platform and outsourced
professional services.
Investing Activities
Our investing activities consisted primarily of property and equipment purchases, which included capitalized development costs related to internal-use software.
Net cash used in investing activities during the three months ended
Net cash used in investing activities during the three months ended
Financing Activities
Our financing activities consisted primarily of proceeds received from stock option exercises and our employee stock purchase plan.
Net cash used in financing activities for the three months endedApril 30, 2021 consisted primarily of$6.2 million used to repurchase shares for tax withholdings on release of restricted stock, offset by$4.1 million of proceeds from shares issued in connection with employee stock purchase plan and$0.7 million of proceeds received from stock option exercises.
Net cash provided by financing activities for the three months ended
Contractual Obligations and Commitments
Our principal commitments consist of long-term debt, obligations under operating leases for office space, and non-cancelable contracts for cloud infrastructure services. There have been no material changes in our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles inthe United States or GAAP. The preparation of these condensed consolidated financial statements requires us to make 34
-------------------------------------------------------------------------------- estimates and assumptions that are inherently uncertain and that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K. See "Note 2-Summary of Significant Accounting Policies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding our significant accounting policies.
Recent Accounting Pronouncements
See "Note 2-Summary of Significant Accounting Policies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements.
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